<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 10-KSB

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                                   (MARK ONE)

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL YEAR ENDED MAY 31, 2006; OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
            FOR THE TRANSITION PERIOD FROM _________ TO __________ .


COMMISSION FILE NUMBER 0-11791

                               PURCHASESOFT, INC.
                 (Name of Small Business Issuer in its Charter)

DELAWARE                                                              13-2897997
(State or Other Jurisdiction of
Incorporation or Organization)                             (IRS Employer ID No.)

2091 BUSINESS CENTER DRIVE, SUITE 100
IRVINE, CA 92612                                                           92612
(Address of Principal Executive Offices)                              (Zip Code)

Issuer's Telephone Number, Including Area Code: (949) 263-0910

Securities Registered Under Section 12(b) of the Exchange Act:              NONE

Securities Registered Under Section 12(g) of the Exchange Act:

TITLE OF EACH CLASS
---------------------------------------
Common Stock, par value $0.01 per share


Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

Yes No |X|

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes |_| No |X|

Issuer's revenues for its most recent fiscal year: $541,011

The aggregate market value of the common stock, par value $0.01 per share, held
by non-affiliates of the Registrant totaling 24,674,387 shares was $24,674 as of
May 31, 2006 (based upon the closing bid of the Registrant's common stock on the
OTC Pink Sheets on May 31, 2006 of $0.001 per share). As of May 31, 2006, there
was no active market for the Issuer's common stock.


<PAGE>

State the number of shares outstanding in each of the issuer's classes of common
equity, as of May 31, 2006.

                 CLASS                               OUTSTANDING
---------------------------------------  ---------------------------------------
Common Stock, par value $0.01 per share           24,674,338 shares

                       DOCUMENTS INCORPORATED BY REFERENCE

None

                                       2

<PAGE>

                               PURCHASESOFT, INC.
                          ANNUAL REPORT ON FORM 10-KSB
                                  MAY 31, 2006

                              CROSS REFERENCE SHEET

                                     PART I
                                     ------

ITEM 1 DESCRIPTION OF BUSINESS

ITEM 2 PROPERTIES

ITEM 3 LEGAL PROCEEDINGS

ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                                     PART II
                                     -------

ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

ITEM 7 FINANCIAL STATEMENTS

ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

ITEM 8A CONTROLS AND PROCEDURES

                                    PART III
                                    --------

ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

ITEM 10 EXECUTIVE COMPENSATION

ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 13 EXHIBITS AND REPORTS ON FORM 10-K

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES


                                       3

<PAGE>


                           FORWARD LOOKING STATEMENTS

This document includes "forward-looking" statements within the meaning of the
Private Securities Litigation Act of 1995. This Act provides a "safe harbor" for
forward-looking statements to encourage companies to provide prospective
information so long as they identify these statements as forward-looking and
provide meaningful cautionary statements identifying important factors that
could cause actual results to differ from the expected results. All statements
other than statements of historical fact made in this document are forward
looking. In some cases, they can be identified by terminology such as "may,"
"will," "should," "expect," "plan," "anticipate," "believe," "estimate,"
"predict," "potential," or "continue," the negative of such terms or other
comparable terminology. These statements are only predictions. Actual events or
results may differ materially. In evaluating these statements, you should
consider various factors that may cause actual results to differ materially from
any forward-looking statements.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee our future results, levels of
activity, performance or achievement. Moreover, neither we nor any other person
assumes liability for the accuracy and completeness of the forward-looking
statements. Actual results may differ materially from those projected as a
result of certain risks and uncertainties, including but not limited to:
recession and other external economic factors over which the Company has no
control; the timing and speed with which our major customers and prospects
execute their plans for the use of our software, continued development of the
Company's software products; competitive product and pricing pressures; use of
internally developed software applications; patent and other litigation risk;
the risk of key staff leaving the Company; the risk that major customers of the
Company's products may terminate use of our software as well as other risks and
uncertainties, including but not limited to those detailed from time to time in
the Company's Securities and Exchange Commission filings. These forward-looking
statements are made only as of the date hereof, and the Company undertakes no
obligation to update or revise the forward-looking statements, whether as a
result of new information, future events or otherwise.

                                     PART I

The Company's annual report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and amendments to these reports filed or furnished
pursuant to section 13(a) or 15(d) of the Exchange Act are made available free
of charge through the Company's website, located at http://www.purchasesoft.com
, as soon as reasonably practicable after reports have been filed with the
Securities and Exchange Commission (SEC). The SEC also maintains an Internet
site at http://www.sec.gov where these reports and other information about the
Company can be obtained.

ITEM 1: DESCRIPTION OF BUSINESS

OVERVIEW

Before prior management's announcement to wind down the Company's operations in
December 2001, PurchaseSoft was positioned to become one of the leaders in
eProcurement and eSourcing software. The Company had been supplying software for
procurement since the late 1980's. Over 150 manufacturing, insurance,
publishing, distribution and financial services firms had installed their
software. PurchaseSoft 5.0 (GT Purchase Pro), the Company's client-server
solution had over 25 active clients and the newer Enterprise solution,
PurchaseSmart 3.0 was just gaining traction with four installations.

The Company suffered the same fate as many others when the tech funding bubble
burst and without the ability to raise more capital in the public equity
markets, the Board decided to wind down operations and close the Company.
Attracted by projections of substantial growth in the procurement software
market, PurchaseSoft investor and senior software executive Steven A. Flagg
acquired controlling interest in the Company in August 2002 and restarted
operations.

The Company made two acquisitions via the issuance of stock, one in Germany,
Netshare Solutions GmbH, in January, 2004 and another, in the United States,
Computer Information Enterprises, Inc., in February, 2004. Netshare fit closely
with management's strategy to acquire Microsoft-centric software and services
companies. Unfortunately, the underlying economic benefit of acquiring Netshare
was an anticipated contract with a major Middle Eastern firm which did not
materialize. Additionally, Netshare failed to raise three hundred thousand Euros
necessary to sustain operations in Germany. With operating losses, the inability
to raise capital overseas and delays in obtaining a significant contract, the
Board of Directors of Company and the Managing Director of Netshare Solutions
agreed to place Netshare into Temporary Insolvency on May 31, 2004.
Subsequently, management determined that it was not economically viable to
continue to financially support Netshare and allowed the Trustee to liquidate
the assets of Netshare Solutions, GmbH. This investment was entirely written-off
for the fiscal period reported.


                                       4

<PAGE>

The acquisition of Computer Information Enterprises, Inc. (CIE) has provided the
Company with the initial platform for further acquisitions in the United States.
CIE is an established developer of a document imaging management solution,
ImageLink that is tightly-integrated into a company's ERP accounting system via
Microsoft Dynamics SL and GP and Sage's MAS90/200. Over the past two years
management has reduced overhead, re-focused its business strategy to enhancing
existing and developing new document imaging software products, and increased
software prices of its core products while continuing to service and renew
existing customer's under maintenance agreements.

BUSINESS STRATEGY

The Company's strategy once it has CIE operating at a breakeven basis,
pre-corporate overhead allocations, is to acquire the software, intellectual
property (IP), customer base and maintenance contracts of other software
companies with a focus on Microsoft-centric product related companies. Computer
Information Enterprises was the first of these acquisitions that will serve as a
platform. Future acquisitions will be small to medium-sized, privately-held
companies with revenues under five million dollars that are generally too small
to attract private equity funds and strategic buyers.

The Company believes there are a substantial number of businesses meeting these
criteria due to continued weakness in IT spending, the poor IPO market, the need
for alternative exit strategies for the many VC firms stuck with a portfolio of
small software companies and software executives who have ridden the
rollercoaster of IT expansion and contraction and are now seeking a liquidity
event.

PRODUCTS

"PurchaseSoft 5.0"
------------------

In May 1994, the Company released its first Microsoft Windows and client/server
based purchasing and materials management software system, GT Purchase PRO. In
the Fall of 1997 the product name was changed from GT Purchase PRO to
PurchaseSoft 5.0 consistent with the wider "enterprise" scope of the Company's
software solution. PurchaseSoft 5.0 solutions provide a complete end-to-end
electronic procurement system featuring electronic catalogs, requisitioning,
e-mail enabled authorization, request for quotations, quotations, reports and
analyses, purchasing, receiving, inventory management, fixed asset management,
invoice management and advanced decision support.

PurchaseSoft 5.0 is a full life-cycle suite of software modules for improving
the performance of Purchasing and Materials Management. PurchaseSoft 5.0 is
compatible with Structured Query Language ("SQL") databases, client/server
architecture, and e-mail. PurchaseSoft 5.0 was an enterprise-wide application
developed in PowerBuilder 5.0.

The complete PurchaseSoft 5.0 software suite includes the following modules:

 Purchasing                               Inventory
 Requisitioning                           Invoice Matching
 Receiving                                Asset Management
 Quotations                               Blanket Orders

 Request for Quotations (RFQs)            Accounts Payable Interface
 Budgeting                                Migration and Integration
 Third Party Billing                      Web Requisitioning
 Web Quotations                           Document Imaging

All of the modules can be integrated into one common logical system, and
interfaces are available for supporting external Accounts Payable and MRO
applications and systems. The software routes electronic purchase requisitions
as application-level communication. Requisitions flow via corporate LANs, WANs,
Internet, or Intranet to back-office solution processing. Requisitions are
created using on-line, electronic product and services catalogs. Before reaching
back-office processing, requisitions must be approved, and this is achieved
using an authorization cycle as established through user-defined workflow routed
on top of existing e-mail systems.


                                       5

<PAGE>

Requisitions can be converted to RFQs to support the bidding and sourcing
process, or requisitions can be turned directly into purchase orders. All
information is processed at the line item level. Buyers can turn one requisition
into many purchase orders or many requisitions into one P.O. A blanket purchase
order feature handles routine and repetitive purchases. Purchase orders can be
sent to vendors via paper, fax, and e-mail or exported for EDI exchange.

Requisition authorization requests move over existing e-mail systems using MAPI.
Contracts, product specifications, and other documents are managed as file
attachments using OLE automation. Also, the system supports robust industry
standard databases-Microsoft SQL Server and Oracle.

IMAGELINK
---------

ImageLink is a document management system that is seamlessly integrated with
Microsoft Dynamics GP and SL and Sage's MAS90/200 ERP accounting systems. The
product offers a secure environment for the storage and retrieval of documents
for companies that have a desire to streamline the paper process within their
business. It is a useful tool for companies that are striving to be in
compliance with Sarbanes-Oxley. There are various levels of user access which
can be established by a central authority. A company can protect documents from
unauthorized alteration and access of documents can be monitored by authorized
personnel.

While ImageLink is marketed as a tool within the accounting ERP system of a
company, its capabilities extend beyond the accounting department. The product
has the capability to capture, store and retrieve document images such as:
contracts, memos, e-mail correspondence, expense reports, vendor accounts and
even audio and video files. Installation and support is conducted remotely.

The Company also has a number of other products it distributes in addition to
its core ImageLink product.

Super Search provides advanced search and retrieval functionality and makes
documents visible to non-ERP accounting system users. This software component is
based on Microsoft's SQL Server and Visual Basic. Key features include security
via assigned rights so unauthorized, non-accounting personnel can only access
certain documents; scanning support for all paper documents with the capability
to sort results by criteria; access to all types of documents including Word,
excel, jpeg images, voice and video.

Batch Processing is a peripheral product that provides a variety of flexible
batch scanning and indexing options from either a centralized or remote
location. Scanning of batched documents can be performed during the data entry
process or completed at a later time. Bar-Coding provides a powerful tool to
automatically index batches of documents.

ImageLink's Design Wizard is an interactive tool that supports the sophisticated
development needs for the users of Super Search. This module expands document
imaging to other departmental applications thereby providing a corporate-wide
document management solution.

AP-Distar is a high-end product solution that provides accounts payable image
capture, data entry and distributed authorization for accounting systems.
AP-Distar lends itself to generic integration with any SQL-based accounting
system.

A product introduced in fiscal year 2005 strictly within the Microsoft Dynamics
SL and GP environment is Work Flow. Also seamlessly integrated with a company's
ERP accounting system, this product offers a unified solution that enables users
to track the entire payable approval process with full audit trail.

                                   COMPETITION

Competition is intense. There are several companies in the Microsoft and Sage
environment that are larger, with greater financial resources and offering
similar products across the full breadth of the Microsoft and Sages' suite of
accounting ERP products. Additionally, there are a large number of software
companies that market a generic, company-wide document management solution that
can also be used within the accounting department of a firm. Continued success
in marketing ImageLink will include the ability to introduce new products while
continually enhancing the capabilities of existing products. The Company
believes that its seamless integration with Microsoft and Sage's ERP accounting
system makes its product unique versus most competitors and provides a distinct
competitive advantage.


                                       6

<PAGE>

ITEM 2: PROPERTIES

Corporate headquarters are located in a leased facility in Irvine, California
consisting of approximately 1,450 square feet of office space. The facilities
are leased for a term of one year and the lease is renewable at the Company's
option. As of February 16, 2003 the Company's mailing address is 2091 Business
Center Drive, Suite 100, Irvine CA 92612. All of the books and records of the
Company are located in this office. The Company maintains no other locations.

ITEM 3: LEGAL PROCEEDINGS

PurchaseSoft was not a party to any legal proceedings during fiscal year 2006 or
as of the date of filing of this Form 10-K.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the last quarter
of the fiscal year ended May 31, 2006.

PART II:

ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our common stock is listed for quotation under the symbol "PSFX.PK" on the
National Association of Securities Dealers OTC Pink Sheets. The following table
sets forth the range of high and low bid quotations of the common stock during
the two fiscal years ended May 31, 2006 and May 31, 2005. The closing bid price
of the common stock on May 31, 2006 on the OTC Pink Sheets was $0.001 per share.

                                                                BID
                                                       ---------------------
     PERIOD                                               HIGH        LOW
     ------------------------------------------------- ---------- ----------

     Fiscal Year Ending May 31, 2006
               First Quarter                           $  0.0001  $   0.0001
               Second Quarter                          $   0.25   $   0.0001
               Third Quarter                           $   0.005  $   0.0001
               Fourth Quarter                          $   0.25   $   0.0001

     Fiscal Year Ended May 31, 2005
               First Quarter                           $  0.0001  $   0.0001
               Second Quarter                          $  0.0001  $   0.0001
               Third Quarter                           $  0.0001  $   0.0001
               Fourth Quarter                          $  0.0025  $   0.0001

STOCKHOLDERS

As of May 31, 2006, there were approximately 215 holders of record of
PurchaseSoft's common stock. To date, we have not paid any dividends on our
common stock.

RECENT SALES OF UNREGISTERED SECURITIES

In February, 2004 the Board approved an increase of authorized shares from Fifty
Million (50,000,000) to One Hundred Million shares (100,000,000) to facilitate
its Private Placement Memorandum for the raising of capital.

We issued shares of our common stock in unregistered transactions during fiscal
years 2005 and 2006. All of the following shares of common stock issued were non
registered transactions in reliance on Section 4 (2) of the Securities Act of
1933, as amended (the "Securities Act"). The shares of common stock issued were
as follows:

In fiscal 2005, Two Million Three Hundred Thousand (2,300,000) shares were
issued for cash of $230,000, One Hundred Ninety Eight Thousand Three Hundred and
Twenty Five shares (98,325) were issued to non-affiliated individuals for
services totaling $9,766 and Four Million Four Hundred Thousand shares
(4,400,000) were issued to managing directors of PurchaseSoft, Inc. for services
totaling $96,000.


                                       7

<PAGE>

In fiscal 2006, One Hundred Thousand (100,000) shares were issued for cash of
$25,000, Eight Hundred Thousand (800,000) shares were issued for the conversion
of CIE royalties of $30,000, Twenty Five Thousand (25,000) shares were issued to
non-affiliated individuals for services totaling $12 and Six Million Eight
Hundred Thousand (6,800,000) shares were issued to the managing directors of
PurchaseSoft, Inc. for services totaling $3,400.

TRANSFER AGENT AND REGISTRAR

Our transfer agent is Fidelity Transfer Company, 1800 South West Temple, Suite
301, Salt Lake City, UT 84115.

ITEM 6: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion of our financial condition and results of operations
should be read in conjunction with our financial statements and attached notes
and the other financial information included elsewhere in this Annual Report on
Form 10-KSB. This Management's Discussion and Analysis of Financial Condition
and Results of Operations section contains descriptions of our expectations
regarding future trends affecting our business. These forward-looking statements
and other forward-looking statements made elsewhere in this document are made in
reliance upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The discussion below and under the heading "Risk Factors"
sets forth numerous factors we believe could cause actual results to differ
materially from those contemplated by the forward-looking statements. We are not
under any obligation to update the information contained in this section.

                       OVERVIEW OF SIGNIFICANT ACTIVITIES

In the fiscal year ending May 31, 2004 management took the initial steps to
begin the process of increasing shareholder value via growth through
acquisitions. The first of these acquisitions in January, 2004 was Netshare
Solution, GmbH, (Netshare) headquartered in Hanover, Germany.

The Company acquired 100% of Netshare through the issuance of eight million
shares of stock with seven million of these shares going to the managing
directors of Netshare. The Company initially made available over Two Hundred
Thousand Dollars (USD) $200,000 as working capital to support its operations.
This acquisition was premised on Netshare quickly closing on a large contract
that had been in negotiations for several months with a major Middle Eastern
company. Concurrent with this acquisition Netshare and its management was to
raise Three Hundred Thousand (300,000) Euros to support ongoing working capital
requirements. With a very high unemployment rate in Germany within the
technology sector and a large number of technology businesses in, or facing
bankruptcy, the market to raise funds was very limited. Additionally, the
contract, projected to begin in February, 2004 was continually delayed,
renegotiated and restructured, further inhibiting local management's ability to
raise necessary capital. In the fourth quarter the Company advanced over Fifty
Thousand Dollars, USD, ($50,000) to further support its working capital needs.
Attempts to sell Netshare's state of the art data center to raise monies for
working capital also failed and on May 31, 2004, the managing director of
Netshare Solutions, in concurrence with the Board of Directors of PurchaseSoft,
placed Netshare in temporary insolvency in Germany. With no ability to raise
capital and the major contract not imminent, the Company allowed the trustee of
Netshare to liquidate assets thereby forcing the complete write-off of
PurchaseSoft's investment in Netshare.

The former Secretary, Treasurer, acting CFO, and board member, Tom Marsh,
resigned from his duties in March, 2004 to pursue other interests. Werner
Loechle, COO and board member, residing in Stuttgart, Germany, resigned as an
officer and board member in October, 2004.

On February 16, 2004 the Company closed its second acquisition, Computer
Information Enterprises, Inc. (CIE) located in Irvine, CA. This acquisition was
made with the issuance of One Million (1,000,000) shares of Company stock. CIE
had been in business for over twenty years prior to being acquired by Company,
transforming itself from one generating revenues primarily from consulting
services, to one that developed and now markets a proprietary software program,
ImageLink, that is a secure, seamlessly-integrated document imaging software
program initially for Microsoft Dynamics GP and SL ERP accounting users.
ImageLink, first launched in 1996 now has over seven hundred licensed users of
its product across North America. CIE has provided the platform for organic
revenue growth and as a platform for future acquisitions.


                                       8

<PAGE>

In February, 2004 the Board authorized and received approval to increase its
outstanding shares from the existing Fifty Million (50,000,000) authorized to
One Hundred Million (100,000,000) shares authorized. The Company issued a
Private Placement Memorandum authorizing the raising of Eight Hundred Thousand
Dollar ($800,000) at (C) .02 per share. From March 1, 2004 through May 31, 2004
the company successfully raised $160 thousand dollars U.S. via this Private
Placement. Another $60,000 was raised via a bridge loan in August, 2003 that was
converted to equity in February, 2004 via warrants attached to the loan.

In fiscal year 2005 Forty Five Thousand Dollars ($45,000) was raised via the
Private Placement and an earlier loan for Twenty Five Thousand Dollars ($25,000)
was converted to equity at (C).02 per share. The Private Placement Memorandum's
period was extended an additional six months and in September, 2005 another
Twenty Five Thousand ($25,000) was raised at (C) .05 per share.

Fiscal Year ended 2006 compared to 2005 (all figures founded to the nearest
$1,000)

In 2006, total revenues were $541 compared to $383 in fiscal year 2005. Software
sales comprised $303 of this total compared to $202 in fiscal 2005. Maintenance
revenues for 2006 doubled from the prior fiscal period, increasing from $72 in
2005 to $160 in 2006. Consulting Services showed a planned decline as third
party consulting fees were reduced to focus personnel on support for
customization projects related strictly to ImageLink.

Cost of Service Revenue showed both a decline in dollars, $367 in 2006 versus
$383 in 2005 and as a percentage, from 100.2% in 2005 to 67.8% in fiscal year
2006.

General and Administrative expenses also showed a sharp decline, from $597 in
fiscal 2005 to $372 in 2006. The vast majority of this overall decrease was due
to a reduction in Stock Benefit Expenses, a non-cash expense that in fiscal year
2005 was $77 compared to $0 in fiscal year 2006 and amortization expense
totaling $54 in 2005 compared to $0 in 2006. The amortization expense is related
to the full write-off of long-term customer contracts whose obligations were
fulfilled either through the client dropping CIE's various software products or
fulfillment of the term obligation within the period.

 The only other major item contributing to the net loss of $668 in fiscal year
2005 compared to a $207 loss in fiscal year 2006 is the write-off of the
remaining value of the Netshare acquisition made in fiscal 2004 and totaled $57.

                         LIQUIDITY AND CAPITAL RESOURCES

In fiscal year 2006 the Company turned cash flow positive on an operating basis.
As of May 31, 2006 the Company had approximately $78 in cash, an increase of $40
from the prior fiscal period.

Net cash provided by financing activities during 2005 included $230 cash
received from the private placement memorandum compared to $25 in fiscal 2006
and was partially offset by a reduction in shareholder loans of $78 and $33, in
2005 and 2006, respectively.

The Company intends to raise capital in fiscal year 2007, anticipated to be up
to $2 million via a Private Investment in a Public Entity ("PIPE") to fund
further acquisitions and to provide increased working capital.

                  CRITICAL ACCOUNTING POLICIES AND ASSUMPTIONS

The accompanying consolidated financial statements were prepared in conformity
with accounting principles generally accepted in the United States.

BASIS OF PRESENTATION

The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America.

CASH EQUIVALENTS

Cash equivalents consist primarily of cash deposits and highly liquid
investments with maturities of three months or less.


                                       9

<PAGE>

INTANGIBLE ASSETS

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the
Company evaluates intangible assets and other long-lived assets for impairment,
at least on an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated
future cash flows. Recoverability of intangible assets and other long-lived
assets is measured by comparing their net book value to the related projected
undiscounted cash flows from these assets, considering a number of factors
including: past operating results, budgets, economic projections, market trends
and product development cycles. If the net book value of the asset exceeds the
related undiscounted cash flows, the asset is considered impaired, and a second
test is performed to measure the amount of impairment loss.

REVENUE RECOGNITION

Revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements." The Company recognizes revenue
when the significant risks and rewards of ownership have been transferred to the
customer pursuant to applicable laws and regulations, including factors such as
when there has been evidence of a sales arrangement, delivery has occurred, or
service have been rendered, the price to the buyer is fixed or determinable, and
collectibility is reasonably assured.

STOCK - BASED COMPENSATION

SFAS No 123, "Accounting for Stock-Based Compensation," established and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation is determined using the fair
value of stock-based compensation determined as of the date of the grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
intrinsic value accounting method specified in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to account
for stock-based compensation. The Company has elected to use the
modified-prospective transition method. Under the modified-prospective
transition method, compensation cost recognized includes (a) compensation cost
for all share-based payments granted prior to, but not yet vested, as of
December 31, 2005 based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123 and (b) compensation cost for all
share-based payments granted on or subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS No.
123R. As of May 31, 2006, there are no expenses to the Company related to the
implementation of SFAS No. 123R.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at acquisition cost and increased by the
cost of any significant improvements made after purchase. The Company
depreciates the cost over the estimated useful lives of the respective assets
using straight-line method over the estimated useful life.

SOFTWARE

Software is stated at acquisition cost and amortized on a straight-line basis
over their estimated useful life.

INCOME TAXES

The Company accounts for income taxes under SFAS 109, "Accounting for Income
Taxes." Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets, including
tax loss and credit carryforwards and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period the enactment occurs. A valuation allowance is provided for
certain deferred tax assets if it is more likely than not that the Company will
not realize tax assets through future operations.


                                      10

<PAGE>

BASIC AND DILUTED INCOME/(LOSS) PER SHARE

Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires presentation of basic earnings per share ("Basic EPS") and diluted
earnings per share ("Diluted EPS"). Basic earnings/(loss) per share is computed
by dividing earnings/(loss) available to common stockholders by the weighted
average number of common shares outstanding (including shares reserved for
issuance) during the period. Diluted earnings per share give effect to all
dilutive potential common shares outstanding during the period.

All common stock shares are presented to reflect a 5 to 1 reverse stock split
approved by the Board of Directors on March 1, 2005.

SEGMENTED INFORMATION

Management has determined that the Company operates in no dominant industry
segment.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist of cash, cash equivalents and accounts receivable. The
Company places its cash with high quality financial institutions and at times
may exceed the FDIC $100,000 insurance limit. The Company extends credit based
on an evaluation of the customer's financial condition, generally without
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses, as required. Accounts
are "written-off" when deemed uncollectible.

SPECIAL - PURPOSE ENTITIES

The Company does not have any off-balance sheet financing activities.

GOING CONCERN

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. As of May, 31 2006,
the Company had a retained deficit of $44,526,685. This condition raises
substantial doubt as to the Company's ability to continue as a going concern.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty. These financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts, or amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.

In order to improve the Company's liquidity, the Company has and is actively
pursuing additional equity financing through discussions with investment bankers
and private investors. There can be no assurance that the Company will be
successful in its continuing efforts to secure additional equity financing.

If operations and cash flows continue to improve through these efforts,
management believes that the Company can continue to operate. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems.

USE OF ESTIMATES

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the amounts reported in the financial statements.
The Company bases its estimates on historical experience, management
expectations for future performance, and other assumptions as appropriate. Key
areas affected by estimates include the assessment of the recoverability of
long-lived assets, which is based on such factors as estimated future cash
flows. The Company re-evaluates its estimates on an ongoing basis. Actual
results may vary from those estimates.


                                       11

<PAGE>

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Company
periodically assesses the impairment of long-lived assets when conditions
indicate a possible loss. When necessary, we record charges for impairments of
long-lived assets for the amount by which the present value of future cash
flows, or some other fair value measure, is less than the carrying value of
these assets. The Company has recorded no impairment charges.

OPERATING LEASES

The Company enters into lease agreements for a variety of business purposes,
including facilities and equipment. These arrangements are noncancellable
operating leases which do not meet the requirements of capital leases under
Statement of Financial Accounting Standards No. 13, "Accounting for Leases" and
are therefore expensed straight-line over the life of the operating lease.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses the following methods and assumptions to estimate the fair
value of derivative and other financial instruments at the relative balance
sheet date:

         Short-term financial statements (cash equivalents, accounts receivable
         and payable, short-term borrowings, and accrued liabilities) - cost
         approximates fair value because of the short maturity period.

         Long-term debt - fair value is based on the amount of future cash flows
         associated with each debt instrument discounted at our current
         borrowing rate for similar debt instruments of comparable terms.

                                  RISK FACTORS

Stockholders and prospective purchasers of our common stock should carefully
consider the following risk factors in addition to the other information
appearing in this Annual Report on Form 10-KSB.

HISTORY OF LOSSES AND ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE PROFITABILITY.

The Company has experienced ongoing losses from operations. The Company only
resumed operations as a going concern in January 2003. The Company expects that
such losses may continue for at least some period until product sales are
generated in sufficient volume to offset expenses.

NEW MANAGEMENT, ABILITY TO RECRUIT SALES, SERVICE, AND IMPLEMENTATION PERSONNEL.

The Company's management has a very limited history in operating the Company.
There can be no assurance that the Company's management will be successful in
meeting their planned objectives. The ability to achieve anticipated revenues is
substantially dependent on the ability of the Company to attract and retain
skilled personnel, especially key management, sales, support, and development
personnel. The Company believes that its future success will depend in large
part on its ability to attract and retain highly skilled technical, managerial,
marketing, and professional services personnel to ensure the high quality of
products and services provided to its customers. The Company competes in the
market for such personnel against numerous companies, including larger, more
established companies with significantly greater financial resources than the
Company. There can be no assurance that the Company will be successful in
attracting and retaining skilled personnel. The Company's inability to attract
and retain qualified employees would have a material adverse effect on the
Company's business.


                                       12

<PAGE>

RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS.

The market for the Company's software products is characterized by rapid
technological advances, evolving industry standards, change in end-user
requirements, and frequent new product introductions and enhancements.
Accordingly, the Company's future success will depend upon its ability to
enhance its current products and develop and introduce new products that keep
pace with technological developments, satisfy varying end-user requirements, and
achieve market acceptance. Any failure by the Company to anticipate or respond
adequately to technological developments or end-user requirements, or any
significant delays in product development or introduction, could severely damage
the Company's competitive position and have a material adverse effect on
revenues. There can be no assurance that the Company will be successful in
developing and marketing new products or product enhancements on a timely basis
or that the Company will not experience significant delays in the future which
could have a material adverse effect on the Company's results of operations. In
addition, there can be no assurance that new products or product enhancements
developed by the Company will achieve market acceptance.

DEPENDENCE ON A SINGLE PRODUCT-LINE.

Substantially all of the Company's revenues over the next twelve months are
expected to be derived from the sale of its ImageLink software product and
related support services. Accordingly, any event that adversely affects revenue
generated from the sale of software such as increased competition from
competitors, negative publicity or evaluation, or obsolescence brought about if
Microsoft deciding to no longer support either SL or GP accounting software, or
develops its own imaging software for its accounting products, could have a
material adverse effect on the Company's results of operations. The Company's
future financial performance will depend on the continued development and
introduction of new and enhanced versions of its software and other products and
on customer acceptance of such new enhanced products.

FLUCTUATION IN QUARTERLY OPERATING RESULTS.

The Company's revenues and operating results can vary substantially from quarter
to quarter. Sales revenues in any quarter are substantially dependent on
aggregate activity and the Company's ability to recognize revenue in that
quarter in accordance with its revenue recognition policies and generally
accepted accounting principles. Revenues may vary from quarter to quarter due to
variances in prior quarter activity, which may positively or adversely affect
the Company's future financial performance. The Company's sales cycle is
typically from thirty to one hundred and twenty days. The Company's ability to
increase revenue is dependent on its ability to grow sales activity which
provides opportunities for consulting and subsequent maintenance revenues.
Additionally the Company may not be able to recruit, hire, and train sufficient
numbers of qualified consultants to perform such services. Due to the forgoing,
it is likely that in one or more future quarters the Company's operating results
will be below the expectations of public securities market analysts. In such
event, the price of the Company's Common Stock would likely be materially
adversely affected.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.

The Company relies on a combination of copyright, trademark and trade secret
laws, employee and third party nondisclosure agreements, and other industry
standard methods for protecting ownership of its proprietary software and
business practices. There can be no assurance, however, that in spite of these
precautions, an unauthorized third party will not copy or reverse-engineer
certain portions of the Company's products or obtain and use information that
the Company regards as proprietary. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the United States. There can be no assurance that the mechanisms
used by the Company to protect its software will be adequate or that the
Company's competition will not independently develop software products that are
substantially equivalent or superior to the Company's software products. The
Company expects that, as the number of software products in the industry
increases and the functionality of these products further overlaps, software
products will increasingly be subject to claims of infringement on third party
proprietary rights. Any such claim, whether with or without merit, could result
in costly litigation and require the Company to enter into royalty or licensing
arrangements. Such royalty or license arrangements, if required, may not be
available on terms acceptable to the Company or at all.

NEED FOR ADDITIONAL CAPITAL

The Company will need to raise additional capital to finance its development and
acquisition plans. The availability of financing for any plan will be critical
to continue operations. Financing may not be available on terms that are
favorable to us, or at all.


                                       13

<PAGE>

FUTURE SALES OF COMMON STOCK

Our common stock is traded on the National Association of Securities Dealers
OTC: Pink Sheets. Our common stock has historically been highly illiquid. Steven
A. Flagg, who serves on our Board of Directors and is the Company's President,
in the aggregate, owns approximately 56% of the common stock as of May 31, 2006.
If he were to sell even a small portion of the total shares in a short time, the
market price of our common stock would likely decline dramatically. Furthermore,
sales of a substantial number of shares of our common stock by any holder in a
short time would likely cause the market price of our common stock to decrease
significantly. In addition, the sale of any of these shares may impair our
future ability to raise capital through the sale of additional stock.

INABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS

One director of the Company, who also is the Company's President, in the
aggregate owns approximately 56% of our common stock as of May 31, 2006. This
director has enough voting power to approve or disapprove virtually any matters
that are determined by a majority vote of our stockholders, which severely
limits other shareholder's ability to influence PurchaseSoft through voting
their shares.

MAINTENANCE OF A PUBLIC TRADING MARKET FOR SHARES OF OUR COMMON STOCK

Although shares of our common stock are presently quoted on the OTC Pink Sheets,
we cannot assure you that they will continue to be quoted in the future. During
the period of the Company's wind down the Company lost its market makers and has
declined to establish new market makers until full and substantial operations
are underway through product sales or an acquisition. Furthermore, in contrast
to stock that is quoted on the NASDAQ National Market or traded on a national
securities exchange, as a result of our stock being quoted on the OTC Pink
Sheets, stockholders may:

         Find it more difficult to obtain accurate and timely quotations
         regarding the bid and asked price Experience greater spreads between
         bid and asked prices;

         Be charged relatively higher transactional costs when buying or selling
         our common stock; and Encounter more difficulty in effecting sales or
         purchases of common stock.

COST OF COMPLIANCE WITH SECURITIES LAWS

While securities listed on the NASDAQ National Market System or national
securities exchanges are in many cases exempt from the registration requirements
of state securities laws, securities traded on the OTC Pink Sheets must comply
with the registration requirements of state securities laws, which increases the
time and costs associated with complying with state securities laws when raising
capital. We cannot assure that this cost of compliance will not have a material
adverse effect on the viability of the Company.

LIQUIDITY REDUCTION DUE TO "PENNY STOCK" REGULATORY REQUIREMENTS

The Securities and Exchange Commission has adopted regulations imposing
limitations upon the manner in which certain low priced securities, referred to
as a "penny stock," are publicly traded. Under these regulations, a penny stock
is defined as any equity security that has a market price of less than $5.00 per
share, subject to specified exceptions. Unless an exception is available, the
regulations require the delivery, prior to any transaction involving a penny
stock, of a disclosure schedule explaining the penny stock market and the risks
associated with it. Also, under these regulations, some broker-dealers who
recommend these types of securities to persons other than established customers
and "accredited investors" must make a special written suitability determination
for the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Trading activities for penny stocks are more difficult for
broker-dealers than in the case of securities not defined as penny stocks.
Because our common stock may be a penny stock this may have the result of
depressing the market for our securities, and a stockholder may find it
difficult to sell shares of our common stock.


                                       14

<PAGE>

ITEM 7: FINANCIAL STATEMENTS

Gruber & Company  LLC Report of Independent Registered Public Accounting Firm

INDEX TO FINANCIAL STATEMENTS

SEE TABLE OF CONTENTS, PAGE 16.

Balance Sheets for May 31, 2006 and May 31, 2005

Statement of Operations for the years ending May 31, 2006 and May 31, 2005

Statement of Stockholders' Equity for the years ending May 31, 2006 and May 31,
2005

Statement of Cash Flows for the periods ended May 31, 2006 and May 31, 2005

Notes to Financial Statements


                                       15

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

                               PURCHASESOFT, INC.

                     FINANCIAL STATEMENTSFOR THE YEAR ENDED
                          MAY 31, 2006 and May 31, 2005


TABLE OF CONTENTS

   Report of Independent Registered Public Accounting Firm...................17

   Balance Sheets ...........................................................18

   Statements of Operations..................................................19

   Statement of Stockholders' Equity (Deficit)...............................20

   Statements of Cash Flows .................................................21

   Notes to Financial Statements ........................................... 22


                                       16

<PAGE>

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
of PurchaseSoft, Inc.


We have audited the accompanying balance sheets of PurchaseSoft, Inc. as of May
31, 2006 and 2005 and the related statements of operations, stockholders'
deficit and cash flows for the each of the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform our audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PurchaseSoft, Inc. as of May
31, 2006 and 2005 and the results of its' operations and its' cash flows for
each of the two years then ended in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's viability is dependent
upon its ability to obtain future financing and the success of its future
operations. These factors raise substantial doubt as to the Company's ability to
continue as a going concern. Management's plan in regard to these matters is
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.


Gruber & Company, LLC
Lake Saint Louis, Missouri
October 1, 2007

                                       17

<PAGE>
<TABLE>
<S>                        <C>

                                      PurchaseSoft, Inc.
                                        Balance Sheets
                             as of May 31, 2006 and May 31, 2005

                                                                   2006             2005
           Assets

Current Assets
         Cash                                                  $     78,365     $     37,846
         Accounts Receivable                                         68,100           23,070
         Prepaid Software Licenses                                       --              670
         Prepaid Expenses & Other Assets                              2,810            3,078
                                                               ------------     ------------
                 Total Current Assets                               149,275           64,664

Property & Equipment, Net                                             6,643           12,061
Goodwill                                                             97,002           97,002
Deposits                                                              4,839            4,421

                                                               ------------     ------------
  Total Assets                                                 $    257,759     $    178,148
                                                               ============     ============


            Liabilities & Stockholders' Deficit

Current Liabilities
         Accounts Payable & Accrued Expenses                   $    422,205     $    233,342
         Deferred Revenue                                           211,589          144,517
         Shareholder Notes Payable                                  102,000          135,000
                                                               ------------     ------------
                 Total Current Liabilities                          735,794          512,859

Current Liabilities
         Deferred Revenue                                            14,809            9,074
                                                               ------------     ------------
                 Total Current Liabilities                           14,809            9,074

Commitments & Contingencies)                                             --               --

Stockholders' Deficit
         Common Stock 100,000,000 shares authorized,
           par value $.01, 24,674,387 and 16,949,387
           issued and outstanding at May 31, 2006
           and 2005 respectively                                    246,744          169,494
         Additional Paid-in Capital                              43,876,129       43,894,967
         Accumulated Deficit                                    (44,526,685)     (44,319,214)
         Treasury Stock                                             (89,032)         (89,032)
                                                               ------------     ------------
                 Total Stockholders' Deficit                       (492,844)        (343,785)
                                                               ------------     ------------
         Total Liabilities & Stockholders'(Deficit)            $    257,759     $    178,148
                                                               ============     ============


        The accompanying notes are an integral part of these financial statements



                                              18

<PAGE>

                                         PURCHASESOFT, INC.
                                      Statements of Operations


                                                                       For the           For the
                                                                      Year Ended       Year Ended
                                                                        May 31,          May 31,
                                                                         2006             2005

Revenues
         Products                                                    $    302,786     $    202,439
         Services                                                         238,225          180,162
                                                                     ------------     ------------
                 Total Revenues                                           541,011          382,601
                                                                     ------------     ------------

Expenses
         Cost of Service Revenue                                          367,477          383,459
         General and Administrative                                       371,788          597,465
                                                                     ------------     ------------
                 Total Expenses                                           739,265          980,924

Operating Loss                                                           (198,254)        (598,323)

Other Income (Expense)
         Other Income                                                       1,200              334
         Other Expense                                                         --           (1,137)
         Interest Expense                                                  (9,622)         (11,763)
         Loss on Disposition and Discontinuance of Netshare, Inc.              --          (56,896)
                                                                     ------------     ------------
                 Total Other Expense                                       (8,422)         (69,462)

Net Loss Before Income Taxes                                             (206,676)        (667,785)

Provision for Income Taxes                                                   (795)             (50)
                                                                     ------------     ------------
Net Loss                                                             $   (207,471)    $   (667,835)
                                                                     ============     ============

                                                                     ------------     ------------
Loss Per Share-Basic and Diluted                                     $      (0.01)    $      (0.05)
                                                                     ============     ============

                                                                     ------------     ------------
Weighted Average Number of Shares                                      21,879,387       14,465,632
                                                                     ============     ============


             The accompanying notes are an integral part of these financial statements


                                                 19

<PAGE>

                                                         PURCHASESOFT, INC.
                                            Statements of Stockholders' Equity (Deficit)

                                                           Common Stock
                                              ----------------------------------------
                                                                                                                           Total
                                                             Par Value    Additional                                   Stockholders'
                                               Number of      ($0.01)      Paid-In-      Accumulated     Treasury         Equity
                                                 Shares        Amount       Capital        Deficit         Stock         (Deficit)
                                              ------------  ------------  ------------   ------------   ------------   ------------
BALANCE AT FEBRUARY 28, 2003 AFTER
  LIQUIDATION                                    6,657,453  $     66,575  $ 43,205,571   $(43,247,829)  $    (89,032)  $    (64,715)
                                              ------------  ------------  ------------   ------------   ------------   ------------
    Adoption of Push Down Accounting                    --            --       150,803             --             --        150,803
    Special Item Wind Down Adjustments                  --            --        65,317             --             --         65,317
    Common Stock Contributed by Officers
      for Services                                      --            --           429             --             --            429
    Net Loss                                            --            --            --         (9,233)            --         (9,233)
                                              ------------  ------------  ------------   ------------   ------------   ------------
BALANCE AT MAY 31, 2003                          6,657,453  $     66,575  $ 43,422,120   $(43,257,062)  $    (89,032)  $    142,601
                                              ------------  ------------  ------------   ------------   ------------   ------------

    Issued Shares for Netshare Acquisition       1,600,000        16,000        47,000             --             --         63,000
    Issued Shares for Purchase of CIE              200,000         2,000        15,000             --             --         17,000
    Issued Shares for Cash                       1,593,608        15,936       144,064             --             --        160,000
    Net Loss                                            --            --            --       (394,317)            --       (394,317)
                                              ------------  ------------  ------------   ------------   ------------   ------------
BALANCE AT MAY 31, 2004                         10,051,062  $    100,511  $ 43,628,184   $(43,651,379)  $    (89,032)  $    (11,716)
                                              ------------  ------------  ------------   ------------   ------------   ------------

    Common Stock Issued for Services               198,325         1,983         7,783             --             --          9,766
    Common Stock Contributed by Officers
      for Services                               4,400,000        44,000        52,000             --             --         96,000
    Issued Shares for Cash                       2,300,000        23,000       207,000             --        230,000
    Net Loss                                            --            --            --       (667,835)            --       (667,835)
                                              ------------  ------------  ------------   ------------   ------------   ------------
BALANCE AT MAY 31, 2005                         16,949,387  $    169,494  $ 43,894,967   $(44,319,214)  $    (89,032)  $   (343,785)
                                              ------------  ------------  ------------   ------------   ------------   ------------

    Common Stock Issued for Conversion of
      CIE Royalties                                800,000         8,000        22,000             --             --         30,000
    Common Stock Issued for Services                25,000           250          (238)            --             --             12
    Common Stock Contributed by Officers
      for Services                               6,800,000        68,000       (64,600)            --             --          3,400
    Issued Shares for Cash                         100,000         1,000        24,000             --             --         25,000
    Net Loss                                            --            --            --       (207,471)            --       (207,471)
                                              ------------  ------------  ------------   ------------   ------------   ------------
BALANCE AT MAY 31, 2006                         24,674,387  $    246,744  $ 43,876,129   $(44,526,685)  $    (89,032)  $   (492,844)
                                              ------------  ------------  ------------   ------------   ------------   ------------


                              The accompanying notes are an integral part of these financial statements


                                                                 20

<PAGE>

                                         PURCHASESOFT, INC.
                                      Statements of Cash Flows


                                                                             For the      For the
                                                                            Year Ended   Year Ended
                                                                              May 31,      May 31,
                                                                               2006         2005

    Cash Flows from Operating Activities
    ------------------------------------
Net Loss                                                                     $(207,471)  $(667,835)

Adjustments to reconcile net loss to net cash used in operating activities:

      Loss on disposition and discontinuance of Netshare                            --      56,896
      Common Stock Issued  for Services                                          3,412     105,766
      Common Stock Issued for Conversion of CIE Royalties                       30,000          --
      Depreciation and Amortization                                              6,855      59,409

      Changes in operating assets and liabilities:
      Accounts Receivable                                                      (45,030)     32,800
      Prepaid Software Licenses                                                    670       3,860
      Prepaid Expenses                                                             268       3,484
      Deposits                                                                    (418)       (277)
      Accounts Payable and Accrued Expenses                                    188,863     148,849
      Deferred Revenue                                                          72,807      75,852
                                                                             ---------   ---------
      Total adjustments                                                        257,427     486,639
                                                                             ---------   ---------
Net Cash Provided by (Used in) Operating Activities                             49,956    (181,196)

    Cash Flows (Used in) Investing Activities
    ------------------------------------
      Purchase of Property and Equipment                                        (1,437)     (3,687)
      Investment in Netshare                                                        --     (56,896)
                                                                             ---------   ---------
Net Cash Used in Investing Activities                                           (1,437)    (60,583)

    Cash Flows from (Used in)Financing Activities
    ------------------------------------
      Stock Issued for Cash                                                     25,000     230,000
      Loans from Shareholders                                                  (33,000)    (78,000)
                                                                             ---------   ---------
Net Cash Provided by (Used in) Financing Activities                             (8,000)    152,000

                                                                             ---------   ---------
Net Increase (Decrease) in Cash                                                 40,519     (89,779)
                                                                             ---------   ---------

Cash Beginning of Year                                                          37,846     127,625
                                                                             ---------   ---------
Cash End of Year                                                             $  78,365   $  37,846
                                                                             =========   =========


Supplemental Disclosure of Cash Flow Information:
      Cash Paid during the period for interest                               $      --   $     106

Supplemental Disclosure of Non-Cash Items:
      Common Stock Issued for Services                                       $   3,412   $ 105,766
      Common Stock Issued for the purchase of Netshare                       $      --   $      --
      Common Stock Issued for the Purchase of CIE                            $      --   $      --
      Common Stock Issued for Conversion of CIE Royalties                    $  30,000   $      --

             The accompanying notes are an integral part of these financial statements


                                                 21
</TABLE>


<PAGE>

                               PURCHASESOFT, INC.
                        NOTES TO THE FINANCIAL STATEMENTS

NOTE 1-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS AND ORGANIZATION

PurchaseSoft, Inc. (the Company) is pursuing an aggregation strategy of
acquiring Microsoft-centric, privately held software companies in the United
States with revenues under Five Million Dollars. PurchaseSoft's core product is
a sophisticated Purchasing/Supply Chain management software program. The
Company's most notable acquisition to date was Computer Information Enterprises,
Inc. (CIE), a company that develops and markets Imagelink: an imaging and
document management software product for accounting ERP Systems.

GOING CONCERN

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. As of May, 31 2006,
the Company had a retained deficit of $44,526,685 and a working capital deficit
of $586,519. These conditions raise substantial doubt as to the Company's
ability to continue as a going concern. These financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.

In order to improve the Company's liquidity, the Company has and is actively
pursuing additional equity financing through discussions with investment bankers
and private investors. There can be no assurance that the Company will be
successful in its continuing efforts to secure additional equity financing.

If operations and cash flows continue to improve through these efforts,
management believes that the Company can continue to operate. However, no
assurance can be given that management's actions will result in profitable
operations or the resolution of its liquidity problems.

ACCOUNTING METHOD

The Company's financial statements are prepared using the accrual method of
accounting. The Company has elected a May 31 year-end.

CASH EQUIVALENTS

Cash equivalents consist primarily of cash deposits and highly liquid
investments with maturities of three months or less.

STOCK - BASED COMPENSATION

SFAS No 123, "Accounting for Stock-Based Compensation," established and
encourages the use of the fair value based method of accounting for stock-based
compensation arrangements under which compensation is determined using the fair
value of stock-based compensation determined as of the date of the grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
intrinsic value accounting method specified in Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," to account
for stock-based compensation. The Company has elected to use the
modified-prospective transition method. Under the modified-prospective
transition method, compensation cost recognized includes (a) compensation cost
for all share-based payments granted prior to, but not yet vested, as of
December 31, 2005 based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123 and (b) compensation cost for all
share-based payments granted on or subsequent to January 1, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS No.
123R. As of May 31, 2006, there are no expenses to the Company related to the
implementation of SFAS No. 123R.

SOFTWARE

Software is stated at acquisition cost and amortized on a straight-line basis
over their estimated useful life.

INTANGIBLE ASSETS

In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," the
Company evaluates intangible assets and other long-lived assets for impairment,
at least on an annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be recoverable from its estimated
future cash flows. Recoverability of intangible assets and other long-lived
assets is measured by comparing their net book value to the related projected
undiscounted cash flows from these assets, considering a number of factors
including: past operating results, budgets, economic projections, market trends
and product development cycles. If the net book value of the asset exceeds the
related undiscounted cash flows, the asset is considered impaired, and a second
test is performed to measure the amount of impairment loss.




<PAGE>

PROPERTY & EQUIPMENT

Property and equipment is recorded at cost. Major additions and improvements are
capitalized. The cost and related accumulated depreciation of equipment retired
or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as a gain or
loss on sale of equipment. Depreciation is computed using the straight-line
method over the estimated useful life of the assets.

CAPITAL STOCK

The authorized capital stock of the Company consists of 100,000,000 shares of
common stock at a par value of $0.01. At May 31, 2006 and May 31, 2005 were
24,674,387 and 16,949,387 shares issued and outstanding, respectively. All
common stock shares are presented to reflect a 5 to 1 reverse stock split
approved by the Board of Directors on March 1, 2005.

We issued shares of our common stock in unregistered transactions during fiscal
years 2005 and 2006. All of the following shares of common stock issued were non
registered transactions in reliance on Section 4 (2) of the Securities Act of
1933, as amended (the "Securities Act"). The shares of common stock issued were
as follows:

In fiscal 2005, 2,300,000 shares were issued for cash of $230,000, 198,325
shares were issued to non-affiliated individuals for services totaling $9,766
and 4,400,000 shares were issued to managing directors of PurchaseSoft, Inc. for
services totaling $96,000.

In fiscal 2006, 100,000 shares were issued for cash of $25,000, 800,000 shares
were issued for the conversion of CIE royalties of $30,000, 25,000 shares were
issued to non-affiliated individuals for services totaling $12 and 6,800,000
shares were issued to managing directors of PurchaseSoft, Inc. for services
totaling $3,400.

BASIC AND DILUTED INCOME/(LOSS) PER SHARE

Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires presentation of basic earnings per share ("Basic EPS") and diluted
earnings per share ("Diluted EPS"). Basic earnings/(loss) per share is computed
by dividing earnings/(loss) available to common stockholders by the weighted
average number of common shares outstanding (including shares reserved for
issuance) during the period. Diluted earnings per share give effect to all
dilutive potential common shares outstanding during the period.

All common stock shares are presented to reflect a 5 to 1 reverse stock split
approved by the Board of Directors on March 1, 2005.

SEGMENTED INFORMATION

Management has determined that the Company operates in no dominant industry
segment.

CONCENTRATION OF CREDIT RISK

Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist of cash, cash equivalents and accounts receivable. The
Company places its cash with high quality financial institutions and at times
may exceed the FDIC $100,000 insurance limit. The Company extends credit based
on an evaluation of the customer's financial condition, generally without
collateral. Exposure to losses on receivables is principally dependent on each
customer's financial condition. The Company monitors its exposure for credit
losses and maintains allowances for anticipated losses, as required. Accounts
are "written-off" when deemed uncollectible.

SPECIAL - PURPOSE ENTITIES

The Company does not have any off-balance sheet financing activities.


IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," the Company
periodically assesses the impairment of long-lived assets when conditions
indicate a possible loss. When necessary, we record charges for impairments of
long-lived assets for the amount by which the present value of future cash
flows, or some other fair value measure, is less than the carrying value of
these assets. The Company has recorded no impairment charges.


                                      22

<PAGE>



OPERATING LEASES

The Company enters into lease agreements for a variety of business purposes,
including facilities and equipment. These arrangements are noncancellable
operating leases which do not meet the requirements of capital leases under
Statement of Financial Accounting Standards No. 13, "Accounting for Leases" and
are therefore expensed straight-line over the life of the operating lease.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company uses the following methods and assumptions to estimate the fair
value of derivative and other financial instruments at the relative balance
sheet date:

         Short-term financial statements (cash equivalents, accounts receivable
         and payable, short-term borrowings, and accrued liabilities) - cost
         approximates fair value because of the short maturity period.

         Long-term debt - fair value is based on the amount of future cash flows
         associated with each debt instrument discounted at our current
         borrowing rate for similar debt instruments of comparable terms.

INCOME TAXES

                                                        May 31,         May 31,
                                                         2006            2005
                                                     -----------     -----------

Deferred Tax Asset:
       Net Operating Loss Carryforward               $16,209,306     $16,001,835

       Valuation Allowance                            16,209,306      16,001,835
                                                     -----------     -----------
       Net Deferred Tax Asset                        $        --     $        --
                                                     ===========     ===========


The Company had available approximately $38,900,000 and $38,700,000 of unused
Federal and state net operating loss carryforwards at May 31, 2006 and 2005,
respectively that may be applied against future taxable income. These net
operating loss carryforwards expire through 2022 and 2012 for federal and state
purposes, respectively. The State of California has suspended the use of net
operating losses for years ended May 31, 2004 and 2003. There is no assurance
that the Company will realize the benefit of the net operating loss
carryforwards.

SFAS No. 109 requires a valuation allowance to be recorded when it is more
likely than not that some or all of the deferred tax assets will not be
realized. At May 31, 2004 and 2003, valuation allowances for the full amount of
the net deferred tax asset were established due to the uncertainties as to the
amount of the taxable income that would be generated in future years.

On May 31, 2004, Netshare, Inc. was placed into bankruptcy in the federal courts
of Germany, the country having jurisdiction over Netshare. Management determined
that Netshare was not economically viable and on September 1, 2004 allowed the
trustee to liquidate all assets of the company. In connection with the
bankruptcy filing, the Company recognized a $297,499 loss on the disposition and
discontinuance of Netshare, which is reflected in the Statement of Operations.

Reconciliation of the differences between the statutory tax rate and the
effective income tax rate is as follows at May 31:

                                                        May 31,         May 31,
                                                         2006            2005
                                                     -----------     -----------

Statutory Federal Tax (Benefit) Rate                     -34.00%         -34.00%
Statutory State Tax (Benefit) Rate                        -5.83%          -5.83%
                                                     -----------     -----------
Effective Tax (Benefit) Rate                             -39.83%         -39.83%
                                                     -----------     -----------

Valuation Allowance                                       39.83%          39.83%
                                                     -----------     -----------
Effective Income Tax                                       0.00%           0.00%
                                                     ===========     ===========


ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.


                                       23

<PAGE>

REVENUE RECOGNITION

In December 1998, AcSEC issued SOP 98-9, Modification of SOP 97-2, "Software
Revenue Recognition, With Respect to Certain Transactions" (product no. 014920).
This SOP amends paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition,
to require recognition of revenue using the "residual method" when (1) there is
vendor-specific objective evidence of the fair values of all undelivered
elements in a multiple-element arrangement that is not accounted for using
long-term contract accounting, (2) vendor-specific objective evidence of fair
value does not exist for one or more of the delivered elements in the
arrangement, and (3) all revenue-recognition criteria in SOP 97-2 other than the
requirement for vendor-specific objective evidence of the fair value of each
delivered element of the arrangement are satisfied. Under the residual method,
the arrangement fee is recognized as follows: (1) the total fair value of the
undelivered elements, as indicated by vendor-specific objective evidence, is
deferred and subsequently recognized in accordance with the relevant sections of
SOP 97-2 and (2) the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue related to the
delivered elements.

Effective December 15, 1998, this SOP amends SOP 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2, "Software Revenue Recognition," to extend the
deferral of the application of certain passages of SOP 97-2 provided by SOP 98-4
through fiscal years beginning on or before March 15, 1999.

All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. Earlier adoption is permitted as of
the beginning of fiscal years or interim periods for which financial statements
or information have not been issued; retroactive application is prohibited.

Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions" (SOP 98-9) was issued in
December 1998 and addresses software revenue recognition as it applies to
certain multiple-element arrangements. SOP 98-9 also amends Statement of
Position 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2", to
extend the deferral of application of certain passages of Statement of Position
97-2 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP 98-9 are effective for transactions entered into in fiscal
years beginning in after March 15, 1999. We will comply with the requirements of
SOP 98-9 as they become effective and this is not expected to have significant
effect on our revenue recognition.

In accordance with SOP 97-2, as amended by SOP 98-4 and. SOP 98-9, revenue from
product licensing fees is recognized when the product is delivered, all
significant contractual obligations have been satisfied and the resulting
receivable is deemed collectible by management. Service revenue from software
maintenance agreements is recognized ratably over the maintenance period, which
in most instances is one year. Other service revenues, primarily training and
consulting, are generally recognized at the time the service is performed.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. The Company has evaluated the impact of the
adoption of SFAS 151, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.

In December 2004, the FASB issued SFAS No.152, "Accounting for Real Estate
Time-Sharing Transactions--an amendment of FASB Statements No. 66 and 67" ("SFAS
152) The amendments made by Statement 152 This Statement amends FASB Statement
No. 66, Accounting for Sales of Real Estate, to reference the financial
accounting and reporting guidance for real estate time-sharing transactions that
is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real
Estate Time-Sharing Transactions. This Statement also amends FASB Statement No.
67, Accounting for Costs and Initial Rental Operations of Real Estate Projects,
to state that the guidance for (a) incidental operations and (b) costs incurred
to sell real estate projects does not apply to real estate time-sharing
transactions. The accounting for those operations and costs is subject to the
guidance in SOP 04-2. This Statement is effective for financial statements for
fiscal years beginning after June 15, 2005. The Company has evaluated the impact
of the adoption of SFAS 152, and does not believe the impact will be significant
to the Company's overall results of operations or financial position.


                                       24

<PAGE>

In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets,
an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions."The
amendments made by Statement 153 are based on the principle that exchanges of
nonmonetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
nonmonetary exchanges of similar productive assets and replace it with a broader
exception for exchanges of nonmonetary assets that do not have commercial
substance. Previously, Opinion 29 required that the accounting for an exchange
of a productive asset for a similar productive asset or an equivalent interest
in the same or similar productive asset should be based on the recorded amount
of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The Board believes that exception required that some nonmonetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the Board believes
this Statement produces financial reporting that more faithfully represents the
economics of the transactions. The Statement is effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for nonmonetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. The provisions of this Statement
shall be applied prospectively. The Company has evaluated the impact of the
adoption of SFAS 153, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.

In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. Statement 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995, established as preferable a fair-value-

based method of accounting for share-based payment transactions with employees.
However, that Statement permitted entities the option of continuing to apply the
guidance in Opinion 25, as long as the footnotes to financial statements
disclosed what net income would have been had the preferable fair-value-based
method been used. Public entities (other than those filing as small business
issuers) will be required to apply Statement 123(R) as of the first interim or
annual reporting period that begins after June 15, 2005.

The Company adopted Statement 123(R) in December of 2005.

In December 2004, the Financial Accounting Standards Board issued two FASB Staff
Positions - FSP FAS 109-1, Application of FASB Statement 109 "Accounting for
Income Taxes" to the Tax Deduction on Qualified Production Activities Provided
by the American Jobs Creation Act of 2004, and FSP FAS 109-2 Accounting and
Disclosure Guidance for the Foreign Earnings Repatriation Provision within the
American Jobs Creation Act of 2004. Neither of these affected the Company as it
does not participate in the related activities.

In March 2005, the SEC released Staff Accounting Bulletin No. 107, "Share-Based
Payment" ("SAB 107"), which provides interpretive guidance related to the
interaction between SFAS 123(R) and certain SEC rules and regulations. It also
provides the SEC staff's views regarding valuation of share-based payment
arrangements. In April 2005, the SEC amended the compliance dates for SFAS
123(R), to allow companies to implement the standard at the beginning of their
next fiscal year, instead of the next reporting period beginning after June 15,
2005. Management is currently evaluating the impact SAB 107 will have on our
consolidated financial statements.

In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for
Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 provides guidance
relating to the identification of and financial reporting for legal obligations
to perform an asset retirement activity. The Interpretation requires recognition
of a liability for the fair value of a conditional asset retirement obligation
when incurred if the liability's fair value can be reasonably estimated. FIN 47
also defines when an entity would have sufficient information to reasonably
estimate the fair value of an asset retirement obligation. The provision is
effective no later than the end of fiscal years ending after December 15, 2005.
The Company will adopt FIN 47 beginning the first quarter of fiscal year 2006
and does not believe the adoption will have a material impact on its
consolidated financial position or results of operations or cash flows.


                                       25

<PAGE>

In May 2005, the FASB issued FASB Statement No. 154, "Accounting Changes and
Error Corrections." This new standard replaces APB Opinion No. 20, "Accounting
Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements," and represents another step in the FASB's goal to
converge its standards with those issued by the IASB. Among other changes,
Statement 154 requires that a voluntary change in accounting principle be
applied retrospectively with all prior period financial statements presented on
the new accounting principle, unless it is impracticable to do so. Statement 154
also provides that (1) a change in method of depreciating or amortizing a
long-lived non-financial asset be accounted for as a change in estimate
(prospectively) that was effected by a change in accounting principle, and (2)
correction of errors in previously issued financial statements should be termed
a "restatement." The new standard is effective for accounting changes and
correction of errors made in fiscal years beginning after December 15, 2005.
Early adoption of this standard is permitted for accounting changes and
correction of errors made in fiscal years beginning after June 1, 2005. The
Company has evaluated the impact of the adoption of Statement 154 and does not
believe the impact will be significant to the Company's overall results of
operations or financial position.

In February of 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments", which is intended to simplify the accounting and
improve the financial reporting of certain hybrid financial instruments (i.e.,
derivatives embedded in other financial instruments). The statement amends SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities", and
SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities--a replacement of FASB Statement No. 125." SFAS
No. 155 is effective for all financial instruments issued or acquired after the
beginning of an entity's first fiscal year that begins after September 15, 2006.
The Company is currently evaluating the impact SFAS No. 155 will have on its
consolidated financial statements, if any.

The implementation of the provisions of these pronouncements are not expected to
have a significant effect on the Company's consolidated financial statement
presentation.

In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty
in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting For uncertainty in
income taxes recognized in an enterprises' financial statements in accordance
with SFAS No. 109, "Accounting for Income Taxes". FIN 48 prescribes a
recognition threshold and measurement attributable for The financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 also provides guidance on derecognizing, classification,
interest and penalties, accounting in interim periods, disclosures and
transitions. FIN 48 is effective for fiscal years beginning after December 15,
2006. The Company is currently reviewing the effect, if any, FIN 48 will have on
its financial position and operations.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measures" ("SFAS
No. 157"). SFAS No157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles ("GAAP"), expands
disclosures about fair value measurements, and applies under other accounting
pronouncements that require or permit fair value measurements. SFAS No. 157 does
not require any new fair value measurements, however the FASB anticipates that
for some entities, the application of SFAS No. 157 will change current practice.
SFA No. 157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, which for the Company would be its fiscal
year beginning November 1, 2008. The implementation of SFAS No. 157 is not
expected to have a material impact on the Company's results of operations and
financial condition.

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 158, "Employers' Accounting for Defined Benefit Pension and Other
Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and
132(R)". This statement requires employers to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a
multi-employer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the year in which the
changes occur through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. This statement also
requires an employer to measure the funded status of a plan as of the date of
its year-end statement of financial position, with limited exceptions. The
provisions of SFAS No. 158 are effective "for employers with publicly traded
equity securities as of the end of the fiscal year ending after December 15,
2006. The adoption of this statement is not expected to have a material effect
on the Company's future reported financial position or results of operations.

In September 2006, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 108 (Topic 1N), "Quantifying Misstatements in Current
Year Financial Statements" ("SAB No. 108"). SAB No. 108 addresses how the effect
of prior year uncorrected misstatements should be considered when quantifying
misstatements in current year financial statements. SAB No. 108 requires SEC
registrants (i) to quantify misstatements using a combined approach which
considers both the balance sheet and income statement approaches; (ii) to
evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors; and (iii) to
adjust their financial statements if the new combined approach results in a
conclusion that an error is material. SAB No. 108 addresses the mechanics of
correcting misstatements that include effects from prior years. It indicates
that the current year correction of a material error that includes prior year
effects may result in the need to correct prior year financial statements even
if the misstatement in the prior year or years is considered immaterial. Any
prior year financial statements found to be materially misstated in years
subsequent to the issuance of SAB No. 108 would be restated in accordance with
SFAS No. 154, "Accounting Changes and Error Corrections." Because the combined
approach represents a change in practice, the SEC staff will not require
registrants that followed an acceptable approach in the past to restate prior
years' historical financial statements. Rather, these registrants can report the
cumulative effect of adopting the new approach as an adjustment to the current
year's beginning balance of retained earnings. If the new approach is adopted in
a quarter other than the first quarter, financial statements for prior interim
periods within the year of adoption may need to be restated. SAB No. 108 is
effective for fiscal years ending after November 15, 2006, which for Company
would be its fiscal year beginning December 1, 2007. The implementation of SAB
No. 108 is not expected to have a material impact on the Company's results of
operations and financial condition.


NOTE 2-PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                                 For the              For the
                                                Year Ended          Year Ended
                                                  May 31,             May 31,
                                                   2006                2005
                                               ------------        ------------

Computer Equipment                             $     20,780        $     19,343

Less: Accumulated Depreciation                      (14,137)             (7,282)
                                               ------------        ------------
Net Property & Equipment                       $      6,643        $     12,061
                                               ============        ============

Depreciation Expense                           $      6,855        $      5,608


NOTE 3- SHAREHOLDER NOTE PAYABLE

On May 1, 2004, the Company issued two notes payable totaling $205,000 to an
officer of the Company. The notes had an interest rate of 6% per annum and were
due on May 31, 2004. The due dates on these notes were extended to October 31,
2005. In consideration of the due date extension, the Company issued 12,000,000
shares of its $0.01 par value common stock, with a market value of $1,200 to the
officer.  At May 31, 2006 the balance due to shareholders was $102,000 and at
May 31, 2005 was $135,000.

NOTE 4- COMMITMENTS AND CONTIGENCIES

The Company has a one year lease on office space expiring on February 28, 2008
for a maximum $40,308.00 annually.


                                       26

<PAGE>



                                    PART III:


ITEM 9A: CONTROLS AND PROCEDURES

Within the 90 days prior to the filing of this report, we carried out an
evaluation, under the supervision and with the participation of our President
and Secretary/Treasurer, of the effectiveness of the design and operation of our
disclosure controls and procedures. Our disclosure controls and procedures are
designed with the objective of ensuring that information required to be
disclosed in our reports filed under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms. Based on this evaluation, our President and
Secretary/Treasurer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be
included in our periodic SEC reports.

There have been no significant changes in our internal controls or in other
factors which could significantly affect internal controls subsequent to the
date of our most recent evaluation.

ITEM 9: DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth our directors and executive officers as of May
31, 2006, their ages and the positions held by them:

                                                                  YEAR BECAME
                                                                   OFFICER OR
NAME                    AGE       POSITION WITH COMPANY             DIRECTOR
---------------------- ----- -------------------------------- ------------------
Steven A. Flagg         46   President, CEO and Director             2002


Kevin A. Yanoscik       48   CFO, Director, Secretary/Treasurer      2004

Steven A. Flagg (47) President and Chairman. Mr. Flagg has served as the
President, Chairman and as a Director since August 5th, 2002. Mr. Flagg is
Managing Partner and co-founder of Marsh+Flagg, a merger and acquisition
advisory firm in La Jolla, California. Prior to Marsh+Flagg, Flagg was an active
individual investor and turnaround consultant to early stage technology
companies, including Findcom, PurchaseSoft, and PointPoint.Com. Flagg moved to
La Jolla from Paris after several successful management assignments building
international sales and consulting operations for companies such as
KnowledgeWare and Sterling Software. At Sterling, Flagg served as VP of Business
Development for International where he led European M&A activity. Flagg built
the international business of financial software provider SS&C. SS&C completed a
$50 million IPO led by Hambrecht and Quist and Alex Brown. Prior to Paris, Flagg
was a successful software sales executive in NYC working for University
Computing Company (acquired by Computer Associates), Oracle and KnowledgeWare.
Flagg graduated from SUNY Brockport NY with a major in business and sociology.

Kevin A. Yanoscik (49), CFO, Secretary/Treasurer. Mr. Yanoscik has served as
Secretary and Treasurer and as a Director since February 16, 2004. Yanoscik was
previously a principal in the investment banking firm of Marsh+Flagg, a merger
and acquisition advisory firm headquartered in La Jolla, CA with Yanoscik
operating out of Newport Beach, CA. Prior to Marsh+Flagg, Yanoscik held various
corporate lending positions with a number of national and international
financial institutions including FB Commercial Finance, LaSalle Business Credit,
NationsBank and HongKong and Shanghai Banking Corporation. Yanoscik received a
BA in political science from Temple University and an MBA/MIM degree from the
University of Denver.


                                       27

<PAGE>

Board of Directors. The Board is currently comprised of Steve Flagg and Kevin
Yanoscik. With an additional acquisition the company plans to add one to two
additional board members. The company has identified two outside people who have
verbally committed to joining the Board, one of whom is an active CPA who will
head the audit and compensation committees.

FAMILY RELATIONSHIPS

There are no family relationships among any of the directors or executive
officers.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Under Section 16(a) of the Securities Exchange Act of 1934, as amended, our
directors and certain of our officers and persons holding more than ten percent
of our common stock are required to report their ownership of our common stock
and any changes in ownership

to the Securities and Exchange Commission and to us. Specific due dates have
been established and we are required to report in this Annual Report on Form
10-KSB any failure to file by these dates during the fiscal year ended May 31,
2006. Based on our review of copies of these reports and the forms available to
us by the previous management, all forms were filed in a timely manner.

ITEM 10: EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The table below sets forth information regarding executive compensation for the
fiscal year ended May 31, 2006 of our Chief Executive Officers.

<TABLE>
<S>            <C>
                                                  Annual Compensation          Long Term Compensation
                                              ---------------------------   ---------------------------
                                  Year         Salary ($)      Bonus ($)     Options (#)   Compensation
                             --------------   ------------   ------------   ------------   ------------
Steven A. Flagg                 2006 (1)       $ 120,000        $  --            --           $   --
     President

Kevin A. Yanoscik               2006 (2)       $  36,000        $  --            --           $   --
     Secretary & Treasurer
</TABLE>


1. Steven Flagg succeeded Mr. LaGuardia on August 5th 2002.

2. Kevin Yanoscik succeeded Tom Marsh as Secretary and Treasurer on February 16,
2004.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

No option was granted to the officers during the fiscal year ended May 31, 2006.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

Officers did not hold any options during the fiscal year ended May 31, 2006, and
there were no unexercised options held at the end of such fiscal year by the
officers.

EXECUTIVE EMPLOYMENT AGREEMENTS

MANAGEMENT CONSULTING AGREEMENTS
--------------------------------

In February, 2004, the Company entered into annual management consulting
agreements with the Company's President and the Company's Secretary and
Treasurer. The agreements provided that both officers are entitled to receive
compensation for their services rendered, as follows: $10,000.00 per month for
Steven A. Flagg and $3,000.00 per month for Kevin A Yanoscik. These Consulting
agreements were not renewed.


                                       28

<PAGE>

CONSULTING AGREEMENTS
---------------------

In February, 2006 the Company entered into an amendment to a management
consulting agreement with Craig Chandler. The agreements provided that Chandler
receive a base salary of Eighty Four Thousand ($84,000.00) Dollars salary, a
bonus of Two Thousand Five Hundred ($2,500.00) Dollars per fiscal quarter and a
discretionary bonus of up to Two Thousand Five Hundred ($2,500.00) Dollars per
fiscal quarter.

The Company also executed a Consulting Agreement with a former employee who
agrees to serve as the Company's Vice President of Support for a monthly
retainer fee of $200.00 commencing April, 2005.

DIRECTOR COMPENSATION

At the current time, our directors receive no compensation for their service as
directors.

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information as of May 31, 2006, as reported to
us, as to the beneficial ownership of our common stock by each director, each
named officer, by all directors and executive officers as a group and each
person known to us to be the beneficial owner of more than 5% of our issued and
outstanding common stock as of May 31, 2006 or other date noted below. Unless
otherwise specified, the address of each beneficial owner is c/o PurchaseSoft,
Inc., 2091 Business Center Drive, Suite 100, Irvine CA 92612. As of May 31,
2006, 24,674,338 shares of common stock were outstanding.

                              Amount and Nature if     Percentage of Outstanding
                            Beneficial Ownership of      Shares of Common Stock
                                Common Stock (1)              Owned (2)
                            ------------------------      ------------------
Steven A. Flagg (3)            13,829,971                       56.0%

Kevin A. Yanoscik               1,820,000                        7.4%
                            ----------------              ------------------
All current directors and
 executive officers as a
group (2 people).              15,649,971                       63.4%
                            ----------------



(1) The shares owned, and the shares included in the total number of shares
outstanding, have been adjusted, and the percentage owned has been computed, in
accordance with Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as
amended, and includes, options and warrants to the extent called for by such
rule, with respect to shares of common stock, that can be exercised within 60
days. Except as set forth in the footnotes below, such shares are beneficially
owned with sole investment and sole voting power.

(2) The percent of class calculation is based on 24,674,387 shares of
PurchaseSoft's common stock being issued and outstanding as of May 31, 2064 and
effect being given, where appropriate, pursuant to Rule 13d-3(d)(1)(i) under the
Exchange Act, to any option or warrant then exercisable or exercisable within 60
days thereafter.

(3) Includes 300,000 shares held by his children.

ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.


                                       29

<PAGE>

ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K

EXHIBITS

The following exhibits, which are designated with a footnote reference, are
incorporated by reference to a prior registration statement declared effective
under the Securities Act or a periodic report file pursuant to Section 13 of the
Exchange Act. Exhibits designated with an asterisk are filed with this report.


NUMBER                                EXHIBIT
---------- ---------------------------------------------------------------------
2.1        Agreement and Plan of Merger, dated November 10, 1998, by and between
           PurchaseSoft, Inc., a Delaware corporation, and Greentree Software,
           Inc., a New York corporation. (1)

3.1        Certificate of Incorporation of the Company.  (1)

3.2        Amendment to Certificate of Incorporation of the Company.  (10)

3.3        By-laws of the Company.  (1)

4.1        Specimen Certificate for Shares of Common Stock.  (6)

10.1       The Company's Stock Option Plan of 1987.  (2)

10.2       The Company's Stock Option Plan of 1994.  (3)

10.3       The Company's 1997 Stock Option Plan.  (4)

10.4       Registration Rights Agreement dated as of December 25, 1995 among the
           Company and certain of its Shareholder (5)

10.5       Registration Rights Agreement dated as of April 23, 199 among the
           Company and certain of its Shareholders. (5)

10.6       Registration Rights Agreement dated October 25, 1996 between the
           Company and certain of its Shareholders. (4)

10.7       Form of Warrant issued to Wm. Smith Securities & Gilmore & Co. (A
           substantial number of these warrants have been assigned to L-R Global
           Partners, L.P.) (5)

10.8       Form of Warrant issued to TIS Acquisitions and Management Group,
           Inc., The Travelers Indemnity Company, and Mark Cahill, dated October
           25, 1996. (4)


                                       30

<PAGE>

10.9       Form of Warrant issued to Wm. Smith Securities, Inc., dated October
           25, 1996. (A substantial number of these warrants have been assigned
           to L-R Global Partners, L.P.) (4)

10.10      Form of Warrant issued to Wm. Smith Securities, Inc., dated October
           25, 1996. (A substantial number of these warrants have been assigned
           to L-R Global Partners, L.P.) (4)

10.11      Promissory note dated March 23, 2000, of
           PurchaseSoft, Inc. to L-R Global Partners,
           L.P. (This note is no longer outstanding. It
           was converted into common stock at May 31,
           2001 under a conversion agreement dated
           April 12, 2001 between the Company and L-R
           Global.)
           (7)

10.12      Lease agreement between the Company and Flanders Westborough
           Delaware, Inc. (8)

10.13      Lease agreement between the Company and Office Associates L.L.C. (8)

10.14      Management consulting agreement dated as of August 15, 2000 by and
           between the Company and Donald S. LaGuardia. (9)

10.15      Demand promissory note dated January 30,
           2001, of PurchaseSoft, Inc. to L-R Global
           Partners, L.P. (This note is no longer
           outstanding. It was converted into common
           stock at May 31, 2001 under a conversion
           agreement dated April 12, 2001 between the
           Company and L-R Global.)
           (9)

10.16      Employment agreement dated January 25, 2001 between the Company and
           Jeffrey Pinkerton. (11)

10.17      Agreement dated February 21, 2001 between the Company and VIA
           Marketing and Design, Inc. (11)

10.18      Agreement dated March 15, 2001 between the Company and Tata Infotech
           Limited. (11)

10.19      Conversion Agreement dated April 12, 2001 between the Company and L-R
           Global Partners, L.P. (12)

10.20      Demand promissory note dated July 18, 2001, of PurchaseSoft, Inc. to
           L-R Global Partners, L.P. (This note is no longer outstanding. It was
           cancelled on August 28, 2001as partial payment towards L-R Global's
           irrevocable exercise of its subscription rights in the rights
           offering. (13)

10.21      Stock Purchase Agreement Dated July 31, 2002 by and between L-R
           Global Partners, L.P. and Steven A Flagg and Thomas B. Marsh
           concerning the sale of all of L-R Global's stock in PurchaseSoft to
           Flagg and Marsh. (14)

10.22      Management consulting agreement dated May 30, 2003 by and between
           Company and Steven A. Flagg. (15)

10.23      Management consulting agreement dated May 30, 2003 by and between
           Company and Kevin A. Yanoscik. (15)

10.24      Management consulting agreement dated April 1, 2004 by and between
           Company and Stuart Williamson. (15)

10.25      Asset Purchase Agreement dated January 26, 2004 by and between
           Company and Computer Information Enterprises (16)

10.26      Asset Purchase Agreement dated January 30, 2004 by and between
           Company and Netshare Solutions GmbH (16)

10.27      Executive Employment Agreement dated January 26, 2004 by and between
           Company and Craig Chandler, as amended (16)


                                       31

<PAGE>

14.1       Code of Ethics which appears as Exhibit 14.1

16.1       8-K/A dated September 16, 2005 to Registrant's 8-K filed
           July 28, 2005. (18)

17.0       Letter from Mendoza Berger & Company, LLP to the Securities
           and Exchange Commission regarding change in certifying accountant,
           which appears as Exhibit 17.0

31.1       Certifications of the President & CEO

31.2       Certifications of the Secretary/Treasurer & CFO 32.1 Written
           statement of the CEO pursuant to 18 SSC Section 1350

32.2       Written statement of the CFO pursuant to 18 SSC Section 1350

           FOOTNOTES:
           ----------

           (1)        Incorporated herein by reference to the
                      Company's Report on Form 8-K, filed on
                      November 25, 1998.

           (2)        Incorporated herein by reference to the
                      Company's Annual Report on Form 10-K for the
                      fiscal year ended May 31, 1991.

           (3)        Incorporated herein by reference to the
                      Company's Annual Report on Form 10-KSB for
                      the fiscal year ended May 31, 1994.

           (4)        Incorporated herein by reference to the
                      Company's Annual Report on Form 10-KSB for
                      the fiscal year ended May 31, 1997.

           (5)        Incorporated herein by reference to the
                      Company's Registration Statement on Form
                      S-1, File No. 333-45475.

           (6)        Incorporated herein by reference from the
                      Company's Annual Report on Form 10-KSB for
                      the fiscal year ended May 31, 1999.

           (7)        Incorporated herein by reference from the
                      Company's Quarterly Report on Form 10-QSB
                      for the quarter ended February 29, 2000.

           (8)        Incorporated herein by reference from the
                      Company's Annual Report on Form 10-KSB/A for
                      the fiscal year ended May 31, 2000.

           (9)        Incorporated herein by reference from the
                      Company's Quarterly Report on Form 10-QSB/A
                      for the quarter ended August 31, 2000.

           (10)       Incorporated herein by reference from the
                      Company's Quarterly Report on Form 10-QSB
                      for the quarter ended November 30, 2000.

           (11)       Incorporated herein by reference from the
                      Company's Quarterly Report on Form 10-QSB
                      for the quarter ended February 28, 2001.

           (12)       Incorporated herein by reference from the
                      Company's Form S-3 Registration Statement,
                      File No.333-60890 filed on May 14, 2001.

           (13)       Incorporated herein by reference to the
                      Company's Report on Form 8-K, filed on July
                      25, 2001.

           (14)       Incorporated herein by reference to the
                      Company's Report on Form 8-K, filed on
                      August 5, 2002.

           (15)       Incorporated herein by reference to the
                      Company's Report on Form 8-K, filed on
                      January 23, 2004


                                       32

<PAGE>

           (16)      Incorporated herein by reference to the
                     Company's Report on Form 10-QSB for the
                     quarter ended February 29, 2004.

           (17)      Incorporated herein by reference to the
                     Company's Report on Form 8-K/A filed on
                     September 16, 2005.

           (18)      Incorporated herein by reference to the
                     Company's Report on Form 10-KSB for the year
                     ended May 31, 2004.

           (19)      Incorporated herein by reference to the
                     Company's Report on Form 10-QSB for the
                     quarter ended August 31, 2004.

           (20)      Incorporated herein by reference to the
                     Company's Report on Form 10-QSB for the
                     quarter ended November 30, 2004.


REPORTS ON FORM 8-K

None

ITEM 14: PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

The fees paid to the Company's principal accountant, Gruber & Company LLC for
professional services rendered for the annual audit of the Company's financial
statements were $5,000.00 for the year ending May 31, 2006.

AUDIT RELATED FEES

There were no fees paid to the Company's principal accountant, Gruber & Company
LLC pursuant to Item 9(e)(1) of Schedule 14A other than those fees reported
under Audit Fees above.

TAX FEES

The fees paid to the Company's principal accountant, Gruber & Company LLC for
professional services rendered for the filing of state, local and federal tax
returns were $0.00 for the year ending May 31, 2006.

ALL OTHER FEES

There were no other fees paid to the Company's principal accountant, Gruber &
Company LLC for professional services for or during the years ending May 31,
2006.

OTHER

 All fees paid were approved by the Company's Board of Directors and none of the
hours expended on the Company's audit and tax requirements were performed by
persons other than those employed full-time by Gruber & Company LLC..


                                       33

<PAGE>

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Issuer caused
this report to be signed on its behalf by the undersigned, thereunto to be duly
authorized.

                               PURCHASESOFT, INC.
                                    (Issuer)

 Date: October 9, 2007                            /s/ Steven A. Flagg
                                                 -------------------------------

                                                 Steven A. Flagg
                                                 President and CEO

 Date: October 9, 2007                            /s/ Kevin A. Yanoscik
                                                 -------------------------------

                                                 Kevin A. Yanoscik
                                                 Secretary, Treasurer and CFO



In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on May
31, 2006.

SIGNATURE                                                    TITLE
-----------------------------------              -------------------------------

/s/ Steven A. Flagg                                         Director
--------------------------
Steven A. Flagg

/s/ Kevin A. Yanoscik                                       Director
--------------------------
Kevin A. Yanoscik


                                       34